Goods Are Recorded When They Are Produced, Not When They Are Sold
The goods that are just produced can be recorded as part of the GDP as soon as they are produced, even before they are sold. This makes it a little bit difficult to follow the trail of the money associated with the new production.
For example, as soon s the construction of a new house is done, its market value is estimated in $250,000 and immediately counted as part of the GDP, even when it takes months to sell it. Suppose that the construction of the house was done on the 1st of December of 2007, adding $250,000 to the GDP of that year, if the house is sold by the 2nd of March of 2008, it does not count in the GDP of 2007, because double accounting is not allowed.
When the house is sold, it is considered an old property and not a new production. Economists affirm that the right of property of this house, which is now considered old, changed to the hands of the constructor to the new owner. Since exchanging old assets obviously does not imply new production, it does not count in the GDP.
This countable convention applies to the companies that produce any type of good. If Samsung produces a sound system at the end of the year of 2007, the value of that sound system is counted in the GDP of the year 2007 even if it is not sold until 2008, the next year. One practical way of seeing this is to imagine that Samsung produces a sound system and then sells it to themselves when they put it on their inventory. This is the “sale” that is accounted for in the GDP of the year 2007. When the sound system is taken off the inventory in order to be sold to a client, there is only one interchange of assets.
The fact that the product is accounted for when it is made and not when it is sold, is not a good sign when interpreting the statistics of the GDP to measure the health of the economy. A high GDP only means that a lot of things are being produced and are being put on the inventory. It does not necessarily mean that he companies are selling much.
In fact, it is possible that the GDP is high but that the economy is about to enter into a recession because the inventories are accumulating and the business people are going to start reducing the production to adjust them to the desired levels. As a consequence, economists that try to predict where the economy is going pay more attention to the levels of the inventory then to the GDP of the last quarter.
|
